On May 18, 2016, the U.S. Department of Labor (DOL) announced the publication of a final rule amending the white collar overtime exemptions to the Fair Labor Standards Act (FLSA). The final rule, which will be published in the Federal Register on May 23, 2016, increases the threshold salary for the exemption to $913 per week ($47,476 per year), the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South). The new rule also increases the total annual compensation requirement needed to exempt highly-compensated employees (HCEs) to $134,004 per year and established a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

The final rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.The final rule makes no changes to the duties tests for both standard and HCE positions.

When does the final rule take effect?

The final rule will be published in the Federal Register and take effect December 1, 2016. Initial increases to the standard salary level (from $455 to $913 per week) and the HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective then. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.